A Glossay of Common-Mortgage-Terms
70A glossary of common Mortgage related terms. Whether you are a student, a professional, or any person involved in a mortgage transaction, this glossary of mortgage terms is suitable for you.
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- Acceleration Clause
A common provision of a mortgage or note providing the lender with the right to demand that the entire outstanding balance be immediately due and payable in the event of default.
Interest that accumulates on the unpaid principal balance of a loan.
An adjustable rate mortgage is a mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.
- Adjustment Interval
In an ARM, the time interval between adjustments, typically 6 months or annually.
The extent to which something is affordable, as measured by its cost relative to the amount that the purchaser is able to pay.
A written agreement or contract in which the seller agrees to sell and the buyer agrees to buy under specific terms and conditions.
An Alt-A mortgage, short for Alternative A-paper, is a type of U.S. mortgage that, for various reasons, is considered riskier than A-paper, or "prime", and less risky than "subprime," the riskiest category.
Income verification that is done through pay check stubs, bank statements, or W-2 forms rather than income tax returns.
A breakdown of periodic loan payments into two components: a principal portion and an interest portion.
An amortization schedule is a table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.
The Amount Financed is the loan amount applied for less the prepaid finance charges. Prepaid finance charges can be found on the Good Faith Estimate. For example, if the borrower's note is for $100,000 and the Prepaid Finance Charges total $5,000, the amount financed would be $95,000.
An interest rate that reflects the cost of a mortgage stated as a yearly rate. The APR rate is usually higher than the stated note rate because it includes such items as interest, mortgage insurance, and loan origination fees (points).
This covers the initial mortgage costs of processing your mortgage loan application and checking your credit.
An estimate of the value of your home and property by a state licensed appraiser. The appraisal value is usually determined by a comparison of other similar properties that have recently sold in your area.
A cost charged by professionals who are hired to offer educated opinions about the monetary worth or value of a property.
An educated, certified professional with extensive knowledge of real estate markets, values and practices. The appraiser is often the only independent voice in any real estate transaction with no vested interest in the ultimate value or sales price of the property.
An interest rate that reflects the cost of a mortgage stated as a yearly rate. The APR rate is usually higher than the stated note rate because it includes such items as interest, mortgage insurance, and loan origination fees (points).
Written notification from the mortgage lender to the borrower that approves the advancement of a specified amount of mortgage funds under specified conditions.
An adjustable rate mortgage is a mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.
A mortgage that allows a new owner to take over payments. The original borrower remains liable on the mortgage note.
A mortgage whose terms permit it to be taken over ("assumed") by a party other than the original borrower. Lenders generally require credit review of the new borrower and may charge a fee for the assumption.
An auction site is a website where an item can be purchased through an
online bidding process.
Someone granted permission by the cardholder to use a credit card account, but who is not responsible for repayment of the debt.
A home mortgage computerized method of reviewing applications for loan approval.
a means by which loan approval is received directly from Fannie Mae or Freddie Mac and is communicated by computer.
The practice of low-balling figures for settlement costs on the Good Faith Estimate to make them appear more attractive to potential mortgage shoppers.
A bailout is an act of loaning or giving capital to a failing company in order to save it from bankruptcy, insolvency, or total liquidation and ruin.
The outstanding amount of the loan on which the lender charges interest. As the loan is repaid, a portion of each payment is used to satisfy interest which has accrued, and the remainder of the payment is used to reduce the outstanding principal balance.
The loan balance remaining at the time the mortgage period ends that must be paid in full.
A balloon mortgage is a loan with a fixed-rate and fixed monthly payments for a set number of years followed by one large final balloon payment for all of the remainder of the principal balance. Typically, the balloon payment may be due at the end of five, seven, ten or fifteen years. Borrowers with balloon mortgage loans may have the right to refinance or pay off the loan before or at the time the balloon payment is due depending on the contractual agreement of the mortgage note.
Mortgage that is paid every two weeks, rather than monthly, thus repaying the loan more quickly.
A loan which enables buyers to get financing to make a down payment and pay closing costs on a new home, before finalizing the sale of the home they currently own.
A procedure which the seller or builder of a property permanently or temporarily reduces the amount of interest the buyer will have to pay by paying points to the mortgage lender at closing.
A buyer may wish to reduce the number of “points’ paid at the time of
settlement in exchange for “buying up” to higher interest rate and ...
The discount rate used to determine the present value of a stream of future earnings. Typically this will be an appropriate risk-free return plus a premium to reflect the risk of that specific investment.
Refinancing for an amount in excess of the balance on the old loan plus settlement costs. The borrower takes "cash-out" of the transaction.
The limit over which the interest rate on a variable rate mortgage may not rise over the life of the loan.
Closing (or settlement as it is known in some parts of the US) is the final step in executing a real estate transaction.
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called settlement costs.
The date in which the final exchange of consideration and legal completion of a transaction involving a home purchase, a mortgage registration, or both.
One or more persons who have signed the note, and are equally responsible for repaying the loan. Unmarried co-borrowers who live together are advised to agree beforehand on what happens if they split.
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.
Loan eligible for sale to Freddie Mac or Fannie Mae because the original mortgage amount does not exceed an annually adjusted dollar threshold.
A loan made to finance construction of improvements on land.
Inserting provisions into a loan contract that severely disadvantage the borrower, without the borrower’s knowledge, and sometimes despite oral assurances to the contrary. Prepayment penalties are perhaps the most frequently cited subject of such abuse.
A mortgage loan for up to $300,700 in the continental United States (Alaska and Hawaii limits are higher).
A home loan that follows a fixed rate. It's neither guaranteed nor insured by the Federal Housing Administration (FHA) or Department of Veterans' Affairs (VA).
The ability to change a loan from an adjustable rate to a fixed rate.
The COSI is a very stable and slow-moving index. World Savings calculates COSI at the end of every month using the weighted average rate paid on their deposits, including certificates of deposit, and savings and checking accounts. COSI does not move up or down as rapidly as other market interest rates such as the Treasury, LIBOR, or Prime.
A report that is compiled by one or more of the credit bureaus that details credit history, credit inquiries and facts about all accounts ever opened with respective credit lines and on-time or late payment behavior.
- Credit Score
A three-digit number that indicates a borrower's ability to repay a loan, indicating the level of risk a lender will have to accept. Credit scores, which are based on credit history, may be used along with credit reports to reject or accept a loan, or may determine the loan interest rate.
The total amount charged as interest on a loan or mortgage to a certain date.
- Current index value
The most recently published value of the index used to adjust the interest rate on indexed adjustable rate mortgages.
Gathering all long-term debts and rolling them all into a home mortgage loan or refinance.
The deed purchased by the mortgagee from the mortgagor in lieu of the foreclosure of the mortgagee's mortgage. The mortgagor grants the title to the property secured by the mortgage to the mortgagee (lender) in lieu of lender foreclosing the mortgage.
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Used in place of a mortgage in some states. Deed that conveys bare legal title to a trustee to be held as security for a loan on real property.
In the mortgage industry, this term is usually used in only in reference to government loans, meaning FHA and VA loans. Discount points refer to any "points" paid in addition to the one percent loan origination fee. A "point" is one percent of the loan amount.
A sum of money put down to buy a house, car, or other large item. This is a portion of the purchase price which is generally required by the seller to be paid in cash upfront.
A clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells, transfers, or, in some instances, encumbers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full.
Any lien, such as a mortgage, tax or judgment lien. It can also be an easement a restriction on the use of the land or an outstanding dower right that may diminish the value of the property.
The difference between the market value of a property and the claims held against it.
A type of predatory lending where the lender intends for the borrower to default so the lender can grab the borrower's equity.
The holding of funds, documents, securities, and other property by an
impartial third party for the other two participants in a business
transaction. When the transaction is completed, the escrow agent
releases the entrusted property.
- FHA mortgage
A mortgage with federally sponsored mortgage guaranty insurance provided through the FHA.
A numerical rating developed and maintained by Fair Issac and Company that is an indicator of a borrower's creditworthiness based on a number of criteria, and is the basis upon which many lenders will decide to loan money.
A real estate mortgage that has priority over all other mortgages on a specified piece of real estate.
Unlike an adjustable-rate mortgage, a fixed rate mortgage has an interest rate that does not change.
Federal Housing Administration. This is a government insured loan. The government insured the lender against default by the buyer. The buyer pays for the insurance. There are no income limits on the buyer. The base mortgage limit is currently about $122,000.
- Float
Allowing the rate and points to vary with changes in market conditions. The borrower may elect to lock the rate and points at any time but must do so a few days before the closing. Allowing the rate to float exposes the borrower to market risk, and also to the risk of being taken advantage of by the loan provider.
- Float-down
A mortgage interest rate that can drop as mortgage rates go down. This
is usually done when the borrower feels that interest rates will be
going down during an interest rate-lock period before the mortgage
closes.
A situation in which a homeowner is unable to make principal and/or interest payments on his or her mortgage, so the lender, be it a bank or building society, can seize and sell the property as stipulated in the terms of the mortgage contract.
- Forbearance agreement
An agreement by the lender not to exercise the legal right to foreclose in exchange for an agreement by the borrower to a payment plan that will cure the borrower’s delinquency.
A federal agency within the Department of Housing and Urban Development (HUD), which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.
A sales commission charged at the time of purchase and paid to the distributors.
The monthly mortgage payment which, if maintained unchanged through the remaining life of the loan at the then-existing interest rate, will pay off the loan over the remaining life. On some ARMs the mortgage payment may not rise whenever the interest rate increases, or the payment increase may be limited by a payment increase cap. In such case, the payment is not fully amortizing -- if maintained it will not pay off the loan at term -- and at some point it will have to be raised to make it fully amortizing.
- Fully Indexed Interest Rate
The current index value plus the margin on an ARM. Usually, initial interest rates on ARMs are below the fully indexed rate. If the index does not change from its initial level, after the initial rate period ends the interest rate will rise to the fully indexed rate after a period determined by the interest rate increase cap. For example, if the initial rate is 4% for 1 year, the fully indexed rate 7%, and the rate adjusts every year subject to a 1% rate increase cap, the 7% rate will be reached at the end of the third year.
This is a down payment that is gifted to the buyer(s) from the seller(s)based on the property's equity.
A written estimate provided by the lender of the closing costs a
borrower is likely to pay at settlement. This estimate must be provided
to all loan applicants within three business days after a loan
application is received.
A federal association working with FHA which offers special assistance in obtaining mortgages, and purchases mortgages in a secondary capacity.
A time period, usually one or more months, during which the debtor may delay principal repayment without incurring a penalty.
A type of flexible payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.
The interval between increases in the payments on a GPM.
Normal annual income including overtime that is regular or guaranteed.
The income may be from more than one source. Salary is generally the
principal source, but other income may qualify if it is significant and
stable.
Protect Yourself From Mortgage Fraud
A broad form of casualty insurance coverage for real estate that
includes protection against loss from fire, certain natural causes,
vandalism and malicious mischief.
The assumption that the index value to which the rate on an ARM is tied follows the same pattern as in some prior historical period.
Insurance that protects the homeowner from "casualty" (losses or damage to the home or personal property) and from "liability" (damages to other people or property). Homeowners insurance is required by the lender and is usually included in the monthly mortgage payment.
A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses and debt consolidation.
The reverse mortgage program insured by the Federal Housing Administration, a federal government agency.
An open ended line of credit based on a homeowner's accumulated equity.
A closed-end loan secured by the borrower's residential property. Also known as a second mortgage.
The Home Owners' Loan Corporation (HOLC) was a New Deal agency established in 1933 by the Homeowners Refinancing Act under President Franklin D. Roosevelt. Its purpose was to refinance homes to prevent foreclosure. It was used to extend loans from shorter loans to fully amortized, longer term loans (typically 20-25 years). Through its work it granted long term mortgages to over a million people facing the loss of their homes.
- Home Valuation Code of Conduct (HVCC)
The Home Valuation Code of Conduct says “No employee, director, officer, or agent of the lender, or any other third party acting as joint venture partner, independent contractor, appraisal management company, or partner on behalf of the lender, shall influence or attempt to influence the development, reporting, result, or review of an appraisal through coercion, extortion, collusion, compensation, instruction, inducement, intimidation, bribery, or in any other manner.”
- Housing expense ratio
The ratio of housing expense to borrower income, which is used (along with the total expense ratio and other factors) in qualifying borrowers.
A closing document required by HUD (Housing and Urban Development) that outlines the settlement cost of a loan. The closing agent generally prepares the document. The borrower and lender receives it shortly after the loan is closed.
- Indexed ARM
An ARM on which the interest rate adjusts mechanically based on changes in an interest rate index, as opposed to a "discretionary ARM" on which the lender can change the rate at any time subject only to advance notice. All ARMs in the US are indexed.
The original interest rate on an adjustable-rate mortgage.
- Interest Accrual Period
The period over which the interest due the lender is calculated. If the interest accrual period on a 6 % mortgage for $100,000 is a year, as it is on some loans in the UK and India, the interest for the year is .06($100,000) = $6,000. If interest accrues monthly, as it does on most mortgages in the US, the monthly interest is .06/12($100,000) = $500. If interest accrues biweekly, as on a few programs in the US, the biweekly interest is .06/26($100,000) = $230.77. And if interest accrues daily, as HELOCs and some other mortgages in the US do, the daily interest is .06/365 ($100,000) = $16 .44.
- Interest cost
A time-adjusted measure of cost to a mortgage borrower. It is calculated in the same way as the APR except that the APR assumes that the loan runs to term, and is always measured before taxes.
- Interest Due
The amount of interest, expressed in dollars, computed by multiplying the loan balance at the end of the preceding period times the annual interest rate divided by the interest accrual period. It is the same as interest payment except when the scheduled mortgage payment is less than the interest due, in which case the difference is added to the balance and constitutes negative amortization.
A mortgage in which the borrower makes monthly payments of interest only for a specified period of time. This type of loan has a Balloon Payment (ie entire principal amount) due on the expiration date of the Promissory Note.
The portion of each periodic payment on a loan, expressed in dollars, which is allocated toward accrued interest.
The percentage of the principal amount of a loan that is charged for use of that loan. This amount determines the monthly payment.
The length of time between changes in interest rate on an Adjustable or Variable Rate Mortgage.
The maximum interest rate for an adjustable-rate mortgage (ARM), as specified in the mortgage note
The lowest interest rate possible under an ARM contract. Floors are less common than ceilings.
The maximum allowable decrease in the interest rate on an ARM each time the rate is adjusted. It is usually 1 or 2 percentage points.
- Interest Rate Increase Cap
The maximum allowable increase in the interest rate on an ARM each time the rate is adjusted. It is usually 1 or 2 percentage points, but may be 5 points if the initial rate period is 5 years or longer.
Typically, the US Treasury note of a corresponding maturity.
Today's Mortgage Rates: Which home loan is best?
A late fee, also known as a late fine or a past due fee, is a charge levied against a client by a company or organization for not paying a bill or returning a rented or borrowed item by its due date. Its use is most commonly associated with businesses like creditors, video rental outlets and libraries. Late fees are generally calculated on a per day, per item basis.
- Lease-to-own purchase
A transaction in which a hopeful home buyer leases a home with an option to buy it within a specified period.
A legal hold or claim of one person on the property of another as security for a debt or charge.
- Loan "churning"
The process of raising cash periodically through successive cash-out refinancings. It is a scam initiated by mortgage brokers that victimizes wholesale lenders, with the connivance of borrowers.
- Loan modification
The process of re-structuring or altering one or more terms of the original mortgage loan to allow the loan to be re-instated, resulting in a payment the borrower can better afford.
The ratio of a proposed loan amount to a lesser of a property’s appraised value or purchase price. For example, if a property is purchased for $110,000, appraised for $100,000 and the buyer is applying for a loan in the amount of $90,000, the LTV is 90% (90,000 divided by 100,000).
Lender's guarantee that the mortgage rate quoted will be good for a specific amount of time. The home buyer usually wants the lock to stay in effect until the date of the closing.
- Lock Commitment Letter
A written statement from a lender verifying that the price and other terms of a loan have been locked. Borrowers who lock through a mortgage broker should always demand to see the lock commitment letter.
- Lock Failure
The inability or unwillingness of a lender to honor a mortgage price that a borrower had believed was guaranteed.
- Lock Jumper
A borrower, usually refinancing rather than purchasing a home, who allows a lock to expire when interest rates go down in order to lock again at the lower rate.
The amount of time that a lender will guarantee a loan's interest rate.
Once you've locked in the interest rate on a loan, the lender will
guarantee that rate for a certain period of time, usually for 30, 45 or
60 days.
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- Mandatory disclosure
The array of laws and regulations dictating the information that must be disclosed to mortgage borrowers, and the method and timing of disclosure.
Homes built in a factory to federal standards and inspected by federally certified agencies. These homes are often assembled on site.
- Margin
The amount added to the interest rate index, ranging generally from 2 to 3 percentage points, to obtain the fully indexed interest rate on an ARM.
- Market niche
A subgroup within a market segment distinguishable from the rest of the segment by certain characteristics.
The due date when a mortgage or a loan must be paid.
Maximum loan amounts established by both Fannie Mae and Freddie Mac.
The maximum allowable loan-to-value ratio on the selected loan program.
The maximum period for which the lender will provide a rate/point commitment on any program. The most common maximum lock period is 60 days, but on some programs the maximum is 90 days; only a few go beyond 90 days.
The amount of money you are required to put down at closing. If the minimum is 10%, you must make a down payment of at least $10,000 on a $100,000 house.
Monthly payments required on credit cards, installment loans, home equity loans, and other debts but not including payments on the loan applied for.
The security over property given to the lender for the repayment of the loan. The lender (mortgagee) has the right to take the property if the borrower (Mortgagor) fails to repay the loan.
An individual, firm or corporation that originates, sells and/or services loans secured by mortgages on real property.
An individual or company that obtains mortgages for others by finding lending institutions, insurance companies, or private sources to lend the money; may also handle collections and disbursements.
A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price.
- Mortgage Loan
A loan which utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or deed of trust is your agreement to pledge your home or other real estate as security.
A loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.
- Mortgage Price
The interest rate, points and fees paid to the lender and/or mortgage broker. On ARMs, the price also includes the fully indexed rate and the maximum rate.
One who lends the money for the property
One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.
A gradual increase in the mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the unpaid principal balance to create "negative" amortization.
- Negative Points
Points paid by a lender for a loan with a rate above the rate on a zero point loan. For example, a wholesaler quotes the following prices to a mortgage broker. 8%/0 points, 7.5%/3 points, 8.75%/-3 points. On mortgage web sites, negative points are usually referred to as "rebates" because they are used to reduce a borrower's settlement costs. When negative points are retained by a mortgage broker, they are called a "yield spread premium".
- No-Cost Mortgage
A mortgage on which all settlement costs except per diem interest, escrows, homeowners insurance and transfer taxes are paid by the lender and/or the home seller.
A mortgage that does not meet the purchase requirements of the two Federal agencies, Fannie Mae and Freddie Mac, because it is too large or for other reasons such as poor credit or inadequate documentation.
- No Asset Loan
A documentation requirement where
the applicant's assets are not disclosed.
No Ratio Loan: A documentation requirement where the applicant's
income is disclosed and verified but not used in qualifying the
borrower. The conventional maximum ratios of expense to income are
not applied.
A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time; the agreement is secured by a mortgage.
a mortgage that, in the first year or several years of the loan, allows the borrower three or four options with regard to how much to pay on the loan each month.
Usually one percent of price, is payable and forfeited if buyer does not go through with the transaction.
A lender's charge for establishing and processing a new mortgage loan. It is generally computed as a percentage of the loan and may be tax deductible.
The difference between the lowest available price and
any higher price that the home buyer agrees to pay for the loan.
- Partial Prepayment
Making a payment larger than the scheduled payment as a way of paying off the loan earlier.
- Payment Adjustment Interval
The period between payment changes on an ARM, which may or may not be the same as the interest rate adjustment period. Loans on which the payment adjusts less frequently than the rate may generate negative amortization.
A contractual limit on the amount of each periodic payment may rise at any one payment change date. Expressed as a percentage.
The maximum percentage decrease in the payment on an ARM at a payment adjustment date.
Is 30 days from the date which an invoice is raised, unless agreed otherwise in writing.
An underwriting term indicating a situation where the borrower has a significant increase in monthly housing debt.
Interest that is charged daily which usually refers to the partial month's interest that the buyer pays on the mortgage covering the period from the day of closing to the end of the month.
a second mortgage that closes simultaneously with the first mortgage to reduce the total necessary down payment.
- Pipeline Risk
The lender's risk that between
the time a lock commitment is given to the borrower and the time the
loan is closed, interest rates will rise and the lender will take a
loss on selling the loan.
Points: An upfront cash payment required by the lender as part of
the charge for the loan, expressed as a percent of the loan amount;
e.g., "3 points" means a charge equal to 3% of the loan balance. It
is common today for lenders to offer a wide range of rate/point
combinations, especially on fixed rate mortgages (FRMs), including
combinations with negative points. On a negative point loan the
lender contributes cash toward meeting closing costs. Positive and
negative points are sometimes termed "discounts" and "premiums,"
respectively.
Principal, interest, taxes, insurance. The total monthly payment if fully amortized. PITI also used to calculate reserve requirements for asset documentation (ie Full doc loan may have reserve req’t of 2 months PITI - if PITI is $3,000, minimum liquid assets required to qualify is $6,000).
A penalty under a note, mortgage, or deed of trust, imposed when the loan is paid before it is due.
A mortgage approval for a pre-determined amount and interest rate arranged prior to the borrower’s purchasing a property. A pre-approval will determine the borrower’s purchasing power and hold the interest rate for up to 120 days.
Paying on the balance of a loan before it is due. Mortgage prepayments decrease the total amount of interest paid over the life of the mortgage. Penalties may or may not apply.
A dwelling where one actually lives and is considered as the legal residence for income tax purposes.
The outstanding amount of the loan on which the lender charges interest. As the loan is repaid, a portion of each payment is used to satisfy interest which has accrued, and the remainder of the payment is used to reduce the outstanding principal balance.
Insurance provided by non government insurers that protects lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80%.
A mortgage given by a purchaser to a seller on the subject property to secure payment of a part of the purchase price.
The process in which a homebuyer may find out how much of a home loan he or she would be approved for with a lender; gives many buyers more flexibility when shopping for a home.
Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.
Standards imposed by lenders as conditions for granting loans, including maximum ratios of housing expense and total expense to income, maximum loan amounts, maximum loan-to-value ratios, and so on. Less comprehensive than underwriting requirements, which take account of the borrower's credit record.
Rate caps limit how much the interest rate can move up or down.
All the combinations of interest rate and points that are offered on a particular loan program. On an ARM, rates and points may also vary with the margin and interest rate ceiling.
- Rate Protection
Protection for a borrower against the danger that rates will rise between the time the borrower applies for a loan and the time the loan closes. This protection can take the form of a "lock" where the rate and points are frozen at their initial levels until the loan closes; or a "float-down" where the rates and points cannot rise from their initial levels but they can decline if market rates decline. In either case, the protection only runs for a specified period. If the loan is not closed within that period, the protection expires and the borrower will either have to accept the terms quoted by the lender on new loans at that time, or start the shopping process anew.
- Recast Payment
Raising the mortgage payment to the fully amortizing payment. Periodic recasts are sometimes used on ARMs in lieu of or in addition to negative amortization caps.
To pay off a mortgage or other registered encumbrance and arrange for a new mortgage, sometimes with a different lender.
- Rent premium
An increment above the rent paid on a lease-to-own home purchase, which is credited to the purchase price if the purchase option is exercised, but which is lost if the option is not exercised.
- Required Cash
The total cash required of the home buyer to close the transaction, including down payment, points and fixed dollar charges paid to the lender, any portion of the mortgage insurance premium that is paid up-front, and other settlement charges associated with the transaction such as title insurance, taxes, etc. The total required cash is shown on the Good Faith Estimate of Settlement that every borrower receives.
The Real Estate Settlement Procedures Act (12 USC 2601) that, together with Regulation X promulgated pursuant to the Act, regulates real estate transfers involving a “federally-related mortgage loan” by requiring, among other things, certain disclosures to borrowers.
The legal right to void or cancel a loan agreement in such a way as to
regard the contract as if it never happened. This right is given to you
for the three days following closing on the refinance of your first
mortgage or the taking of a second, third, etc. mortgage on your
primary residence.
- Scenario analysis
Determining how the interest rate and payment on an ARM will change in response to specified future changes in market interest rates, called "scenarios".
- Scheduled Mortgage Payment
The amount the borrower is obliged to pay each period, including interest, principal, and mortgage insurance, under the terms of the mortgage contract. Paying less than the scheduled amount results in delinquency. On most mortgages, the scheduled payment is the fully amortizing payment throughout the life of the loan. On some mortgages, however, the scheduled payment for the first 5 or 10 years is the interest payment (see Interest Only Mortgages). And on option (flexible payment) ARMs, it can be the "minimum" payment as defined by the program.
A second mortgage typically refers to a secured loan (or mortgage) that is subordinate to another loan against the same property.
a borrower whose income is derived from a business source in which he/she has an ownership interest of 25% or more.
- Seller contribution
A contribution to a borrower's down payment or settlement costs made by a home seller, as an alternative to a price reduction.
The seller allows the borrower to use a portion of the equity in the property to finance the purchase.
The ongoing process of collecting your monthly mortgage payment, including accounting for and payment of your yearly tax and/or homeowners insurance bills.
Any compensation paid to a lender for the release of rights to service the loan.
Money paid by borrowers and sellers to effect the closing of a mortgage loan, including payments for title insurance, survey, attorney fees and such prepaid items as taxes and insurance escrow.
A shared appreciation mortgage or SAM is a mortgage in which the lender agrees as part of the loan to accept some or all payment in the form of a share of the increase in value (the appreciation) of the property.
A property sale negotiated with a mortgage company in which a lender takes less than the total amount due; A sale of a security that one does not own, delivery obligation met by borrowing the security from another owner
- Silent second
A second mortgage used to deceive the first mortgage lender, or to provide preferential (subsidized) terms to qualified home buyers.
- Simple Interest Mortgage
A mortgage on which interest is calculated daily based on the balance at the time of the last payment. The daily interest charge within the month is constant -- interest is not charged on the interest charges of prior days.
No documentation is required to prove your assets (such as bank accounts).
- Stated income
A documentation requirement where the lender verifies the source of the income but not the amount.
- Streamlined refinancing
Refinancing that omits some of the standard risk control measures, and is therefore quicker and less costly.
- Subordinate Financing
A second lien on the property securing the loan at the time of closing. This arises when there is a second lien on the property at the time the new loan is taken out, and the new loan does not pay it off.
A borrower with a less-than-perfect credit report due to late payments or default on debt payments.
It is the type of lender that specializes in extending loans to borrowers with tainted credit history.
Obama Is Going To Pay For My Gas And Mortgage!!!
A fee paid to the mortgage company to verify that they actually pay the real estate taxes.
Money is advanced to reduce the payments for a set period of years.
The amount of time that is set for the repayment of the mortgage or loan. Conforming loans are usually 15 or 30 years.
Document issued by Registrar of Titles for real estate registered under the Torrens System, which is considered conclusive evidence of the present ownership and state of the title to the property described therein.
An agreement to indemnify against damage or loss arising from a defect in title to real property usually issued to the buyer of real estate by the title company that conducted the title search.
A calculation of all interest paid on a loan over its life.
- Total expense ratio
The ratio of housing expense plus current debt service payments to borrower income, which is used (along with the housing expense ratio and other factors) in qualifying borrowers.
A fee charged each time you draw on your credit line.
- Truth in Lending (TIL)
A federal law that requires lenders to fully disclose, in writing, the
terms and conditions of a mortgage, including the annual percentage
rate (APR) and other charges.
Fees collected from a borrower by a loan officer that are lower than the target fees specified by the lender or mortgage broker who employs the loan officer.
The process undertaken by lenders and insurers to verify the mortgage application information and supporting documentation submitted, make an assessment of risk on both the applicants and the property, and approve or decline the mortgage loan.
- Underwriting requirements
The standards imposed by lenders in determining whether a borrower qualifies for a loan. These standards are more comprehensive than qualification requirements in that they include an evaluation of the borrower’s creditworthiness.
- Upfront Mortgage Broker (UMB)
A mortgage broker who charges a set fee for services provided, established in writing at the outset of the transaction, and acts as the borrower's agent in shopping for the best deal.
An interest rate that may change once an account opens. Veterans Administration (VA) A government agency guaranteeing mortgage loans with no down payment to qualified veterans.
A mortgage where the Veteran's Administration provides assistance to
veterans of the United States Armed Forces by partially guaranteeing
loans to veterans with low or zero down payments.
- Waive Escrows
Authorization by the lender for the borrower to pay taxes and insurance directly. This is in contrast to the standard procedure where the lender adds a charge to the monthly mortgage payment that is deposited in an escrow account, from which the lender pays the borrower’s taxes and insurance when they are due. On some loans lenders will not waive escrows, and on loans where waiver is permitted lenders are likely either to charge for it in the form of a small increase in points, or restrict it to borrowers making a large down payment.
A short-term lender for mortgage bankers. Using mortgages as collateral, the warehouse lender provides interim financing until the mortgages are sold to a permanent investor.
- Warrantable Condos
A condominium project with features that lenders view as protections against hazards that would threaten the value of condo units. These features include the project being completed with most units sold rather than rented, no one party owning more than 10% of them, adequate insurance coverage of common structures, and an ownership association independent of the developer.
- Workout Assumption
The assumption of a mortgage, with permission of the lender, from a borrower unable to continue making the payments.
A refinancing technique involving the creation of a second mortgage which includes the balance due on any existing mortgages, plus the amount of the new secondary or junior lien.
A graphic representation of market yield for a fixed income security plotted against the maturity of the security. The yield curve is positive when long-term rates are higher than short-term rates.
